As of now, this is just a rumor, especially since we don't even know what kind of story we're dealing with yet. There have been rumblings of exploring the underwater environments of Pandora this time around, but we still don't know the conflict. In the most simple terms, the sequel follow Jake Sully (Sam Worthington) after he permanently transfers his consciousness to his Na’vi avatar and begins a new life with Princess Neytiri (Zoe Saldana) after they defeat the human colonizers. Latino Review recalls an MTV interview with Cameron where he said, "It would be a continuation of their story and I expect that those nasty humans didn’t go away forever." We'll have to wait and see if Arnold and Cameron really will reunite for this sequel.

UPDATE: THR has word from Fox that Arnold Schwarzenegger does not currently have a role in Avatar 2, nor is he being considered for any roles. His casting would have changed the tone of the sequel a bit anyway, so maybe it's better this way. Of course, Fox could just be keeping secrets. Or maybe he'll show up in one of the later sequels. We'll have to wait and see.